Stablecoins started as trading collateral, then became payment rails. The next thing they may become is capital markets: large pools of liquidity routed into businesses that need it, returning yield to holders.
That is the bet behind Re, the subject of this week's episode with founder Karn Saroya and Electric Capital's Avichal Garg. Re is an onchain reinsurer (more on this soon). Stablecoins go in, that capital helps back insurance companies, and premiums return to depositors. Karn says Re already backs 35 of them, does around half a billion in business, and expects to near a billion in the coming months.
Crypto's at its best modernizing finance's oldest and most boring systems. This is one of them.
Reinsurance is very meta: it's insurance for insurance companies.
Say an auto insurer sells thousands of policies. It collects premiums but takes on the risk that drivers crash and need paying out. To write more policies, reduce its risk, or prove to regulators it has enough capital behind those promises, it buys reinsurance.
A reinsurer absorbs part of that risk in exchange for a cut of the premiums. It's a market Karn pegs at roughly a trillion dollars in premiums a year. These are returns most people can't touch, having historically gone to pension funds, sovereign wealth funds, family offices, and institutions with the capital and access to play.
But Re believes stablecoins, and their holders, could become a new capital source here, opening those gated premiums to onchain dollars.
Reinsurance is a promise backed by capital, and that promise is only as good as the money behind it. In the traditional system, that capital sits behind opaque balance sheets and murky plumbing. It's not a setup that inspires trust.
But put the capital layer onchain and that changes. Regulators, insurers, and depositors can see that the money behind the promise exists. This is how Re competes: cheaper capital formation, transparent infrastructure, and access to a new pool of onchain dollars.
This reaches past reinsurance. DeFi's yields have increasingly been underpaying for the risk behind them, with M0 founder Luca Prosperi's pricing work showing protocols don't compensate users for what they actually take on. Re's yield is priced differently, coming from insurance premiums and real-world demand for capital rather than token emissions or onchain activity. And its guardrails come from an already regulated industry rather than an onchain venue still finding its footing and riding DeFi's cycles.